Harriet Shetler and Beverly Young started NAMI in Madison, Wisconsin. Both mothers had schizophrenia-diagnosed kids and were "weary of being blamed for their sons' mental condition." The women sought out others who shared their worries about the scarcity of resources available and the treatment of persons living with mental illness. The National Alliance for the Mentally Ill was founded in 1979 after the first conference to address these mental health challenges. Due to concerns that the term National Alliance for the Mentally Ill did not employ person-first language, the legal name was changed to NAMI by a vote of the membership in 1997.

NAMI's purpose is to promote recovery by protecting and strengthening "affected by mental illness" family ties. Education, support groups, educational publications, and lectures are among NAMI's activities and services. Although NAMI was founded to help family members, in recent years it has expanded to include persons who have been diagnosed with mental illness (although activists have criticized these efforts). Furthermore, NAMI places a major emphasis on stigmatizing attitudes and actions toward mental illness; another stated purpose is "to raise public and professional understanding," as well as "to strengthen the mental health system."